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Do Family Wealth Shocks Affect Fertility Choices?

While there is a great deal of literature focusing on the relationship between income and
fertility, little is known about how wealth affects fertility decisions of the household.
This paper fills this gap in the literature by investigating how changes in housing
wealth affect fertility. In particular, we use the wealth variation supplied by the recent
housing boom and bust to generate exogenous variation in household wealth. We first
conduct a state-level aggregate analysis to investigate how the birth rate is related to
housing prices using differences in the timing and size of the housing market boom and
bust across different states over time. We then conduct an analysis using restricted-use
data from the Panel Study of Income Dynamics that allows us to track how women’s
fertility behavior is related to individual-level housing price growth. The demographic
and geographic controls in the PSID allow us to control extensively for any confounding
effects driven by household selection across different cities or neighborhoods, and we
find that for homeowners, a $10,000 increase in real housing wealth causes a 0.07
percent increase in fertility. We find little effects of MSA-level housing price growth
on the fertility of renters, which supports our identification strategy. That increases
in housing wealth are strongly associated with increases in fertility is consistent with
some recent work showing a positive income effect on births, and our estimates are
suggestive that the large recent variation in the housing market could have sizeable
demographic effects that are driven by the positive effect of housing wealth on fertility.